PM 566 Final Project - California Supplier Diversity and Net Income

Author

Norma Marshall

Background and Research Question

To accelerate efforts to reduce health care disparities, hospitals and health systems increase their efforts in core areas such as staff and leadership diversity and cultural competence. However, the economic relationship between healthcare systems and the communities they serve are growing in importance.

Supplier diversity refers to when an organization procures goods and services from a variety of businesses, including those that are at least 51% owned, managed, and operated from marginalized and minority groups. These include women, veterans, African Americans, LGBTQIA+, and more. The private sector, including the healthcare industry has incorporated supplier diversity programs into their business practices after historically being adopted by the federal government and its contractors. According to the Harvard Business Review, supplier diversity programs are important in combatting social injustice and systemic racism in the US as they actively include diverse representation and inclusion in hospital operations and supply chains. In addition, for the moral and ethical arguments, supplier diversity programs have commercial in hospitals and health systems. These benefits include greater innovation and value through cost reductions, expansions of external partnerships, local job creation, better understanding of supply chain sourcing process and sources, and easier compliance with government and grant contracts.

On an annual basis (individual hospital fiscal year), individual hospitals and systems report detailed facility level financial data to the Department of Health Care Access and Information (HCAI). This data includes detailed facility level data on services capacity, inpatient/outpatient utilization, revenues, and expenses by type and payer. In addition, the Health and Safety Code Section 1339.85-1339.87 requires individual hospitals with operating expenses over $50 million to report hospital supplier and diversity reports explaining the hospitals’ supplier diversity statement and procurement efforts regarding minority, women, LGBT, and disabled veteran enterprises.

This report merges the annual financial data and supplier diversity reports for 2023 to answer the question Are California hospitals with diverse suppliers profitable? Supplier diversity aims to increase innovation and drive down prices for supplies and goods though competition while also aiming to improve health equity and combat social injustice in the US through business practices. This exploratory data analysis aims to see if funds dedicated to goods and services from diversely owned businesses can lead to better financial outcomes.

Methods

A novel dataset was collected by merging two data sets, HCAI’s Hospital Annual Financial Disclosure Report for 2023, and HCAI’s Supplier Diversity report from 2023. Required by state law, supplier diversity and financial data are reported each year to the HCAI. Datasets were merged on the shared hospital name variable to create a comprehensive data containing both supplier diversity and financial metrics for each hospital.

Following the merge, several variables indicating procurement from diverse backgrounds were recoded to be used as numeric variables, allowing for quantitative analysis. Address related variables were recoded into latitude and longitude variables to facilitate geocoding using the tidygeocoder package for recoding and the leaflet package for visualization.

Frequency tables were generated to view top hospitals in net income, supplier procurement from different backgrounds, and demographic data. Maps were generated to locate the top performing hospitals and correlations were run to quantify the relationship between supplier procurement and hospital net income.

Demographics

In this report there are 372 hospitals with both financial and supplier diversity data reported the to the HCAI in 2023. On average these hospitals report earning over 24 million dollars over the course of the year and spend over $9.6 million on supplies from diverse suppliers, totaling about 9 percent of the total dollars spent on the procurement on supplies annually.

A majority of these hospitals (320) serve urban areas in California, as demonstrated by large clusters of hospitals around major cities such as San Francisco, San Diego, and Los Angeles. Over 53% of the hospitals are nonprofit, including church related facilities.

Summary Table of Hospital Data
Total Hospitals Average Procurement from Diverse Suppliers Average Total Hospital Procurement Average Net Income
372 9577526 115754584 24413739
Frequencies of Urban/Rural Hospitals
MSSA Frequency
Rural 52
Urban 320
Frequencies of Hospital Types)
Type_Control Frequency
City or County 23
District 17
Investor - Corporation 50
Investor - Limited Liability Company 57
Investor - Partnership 11
Non-profit Corporation (incl. Church-related) 198
State 6
University of California 10
Ethnicity Tier 1 Average Tier 2 Average Total_Average
African_American 1302770.29 185646.895 744208.59
Hispanic_American 588348.67 254509.757 421429.21
Native_American 35539.83 24126.947 29833.39
Asian_Pacific_American 1390579.95 1167240.569 1278910.26
Unknown_Minority 1449526.52 2139327.069 1794426.80
Minority 3861468.02 3529534.212 3695501.12
Women 1447968.35 3235173.272 2341570.81
LGBT 160599.12 6298.884 83449.00
Disabled_Veteran 356259.99 102076.073 229168.03
462651.84 8936.943 235794.39
Total 5197962.10 6548381.092 5873171.60
Ethnicity Tier 1 Average Tier 2 Average Total_Average
African_American 1302770.29 185646.895 744208.59
Hispanic_American 588348.67 254509.757 421429.21
Native_American 35539.83 24126.947 29833.39
Asian_Pacific_American 1390579.95 1167240.569 1278910.26
Unknown_Minority 1449526.52 2139327.069 1794426.80
Minority 3861468.02 3529534.212 3695501.12
Women 1447968.35 3235173.272 2341570.81
LGBT 160599.12 6298.884 83449.00
Disabled_Veteran 356259.99 102076.073 229168.03
462651.84 8936.943 235794.39
Total 5197962.10 6548381.092 5873171.60

How much are hosptials spending on supplies from minority owned businessess?

Washington Hospital in Fremont spends in the most on minority owned suppliers, followed by Stanford Health Care. In specific category, Kaiser Permanente in Santa Clara spends the most on African American suppliers while Stanford leads for Hispanic and Asian/Pacific Category. Washington Hospital in Fremont also is the top performer in the unknown minority category while, such as Kaiser Foundation Hospital - San Diego and Contra Costa Regional Medical Center, lead in categories like total women-owned and LGBT-owned suppliers, respectively.

Hospital Name Combined Total Spent on Minority Owned Suppliers
WASHINGTON HOSPITAL - FREMONT 265276375
STANFORD HEALTH CARE 113963711
CHILDREN’S HOSPITAL OF ORANGE COUNTY 66667480
UCSF MEDICAL CENTER 54596986
KAISER FOUNDATION HOSPITAL - SAN DIEGO - CLAIREMONT MESA 50859953
KAISER FOUNDATION HOSPITAL - DOWNEY 46252720
KAISER FOUNDATION HOSPITAL - SANTA CLARA 45552873
KAISER FOUNDATION HOSPITAL - RIVERSIDE 38359794
KAISER FOUNDATION HOSPITAL - LOS ANGELES 37618486
CEDARS-SINAI MEDICAL CENTER 35384829
Top Performing Hospitals by Category
Top Hospital % of Total Procurement Category
L.A. DOWNTOWN MEDICAL CENTER 22.349809 Total_African_American
CENTRAL VALLEY SPECIALTY HOSPITAL 20.592258 Total_Hispanic_American
VIBRA HOSPITAL OF NORTHERN CALIFORNIA 6.802721 Total_Native_American
LANGLEY PORTER PSYCHIATRIC INSTITUTE 64.608417 Total_Asian_Pacific_American
LANGLEY PORTER PSYCHIATRIC INSTITUTE 64.608417 Total_Asian_Pacific_American
WASHINGTON HOSPITAL - FREMONT 76.707966 Total_Unknown_Minority
WASHINGTON HOSPITAL - FREMONT 80.610506 Total_Minority
PROVIDENCE LITTLE COMPANY OF MARY MC - SAN PEDRO 76.156133 Total_Women
CONTRA COSTA REGIONAL MEDICAL CENTER 14.718012 Total_LGBT
KAISER FOUNDATION HOSPITAL - MODESTO 28.840578 Total_Disabled_Veteran

Where are the most diverse hopstials located?

Across categories and in total, a majority of hospitals that spend the most money on diverse suppliers residei n the bay area. However, there are a signicant number of hospitals that spend a lot of money suppliers from women and disabled veterans in Southern California. Hospitals in northern California include a few state and University of California hospitals including UC San Francisco and Stanford.

What hosptials make the most money?

Regardless of supplier diversity, the top earning hosptials are in the bay area or Los Angeles/Orange County areas. Cedars_Sinai, LA General, UCLA, and Childrens Hopsital are in the top 10 earning hospitals in California, however this does not mean they spend the most on supplies from minority owned businesses.

Most hospitals in the plot below net the average amount in income every year, with some like Eden Medical Center earning the least amount of income.

Top 10 Hospitals by Net Income
Hospital Name Net Income
STANFORD HEALTH CARE 808452386
CEDARS-SINAI MEDICAL CENTER 570706272
RADY CHILDREN'S HOSPITAL - SAN DIEGO 522677659
LOS ANGELES GENERAL MEDICAL CENTER 475854337
EL CAMINO HEALTH 315951240
RONALD REAGAN UCLA MEDICAL CENTER 303667992
HOAG MEMORIAL HOSPITAL PRESBYTERIAN 302767652
SHARP MEMORIAL HOSPITAL 298370158
CHILDREN'S HOSPITAL OF ORANGE COUNTY 234476380
KAISER FOUNDATION HOSPITAL - SANTA CLARA 231096595

Is diverse supplier procurement correlated with net hospital income?

Each hospital also reports tier 1 and tier 2 spend for each category of diverse suppliers. Tier 1 spend refers to the total amount of procurement dollars that an organization spends directly with a certified diverse supplier. Tier 2, on the other hand represents the total amount of procurement dollars that an organization spends with a given supplier, who then sources products and services from another certified diverse supplier. Tier 2 relationships enable hospitals to increase diversity spend while working with existing suppliers or with suppliers who may possess rare capabilities.

To investigate whether or not the relationship between supplier diversity and net income for a hospital can vary between these two types of procurement from diverse suppliers. Correlations were ran between net income and supplier procurement.

There is moderate positive correlation between Tier 1 suppliers that are Hispanic, and women owned (0.59,0.60), as well a s total procurement from Hispanic owned suppliers. There is also a slight negative correlation between tier two supplier procurement from suppliers that are women owned, LGBT owned, and overall (<0) suggesting a negative correlation between increasing tier 2 procurement form diverse suppliers and net income.

Correlation of Diverse Groups with Net Income in Tier 1, Tier 2, and Overall Procurement
Ethnicity Tier 1 Correlation Tier 2 Correlation Total Average Correlation
African_American 0.1351333 0.0108867 0.1448981
Hispanic_American 0.4996018 0.0342794 0.5595856
Native_American -0.0771883 0.0647724 0.0402558
Asian_Pacific_American 0.4564692 0.0483986 0.4980953
Unknown_Minority 0.0431228 -0.0720286 0.0159320
Minority 0.0431228 -0.0720286 0.0159320
Women 0.5396509 -0.0679769 0.5538011
LGBT 0.0602355 -0.0788490 0.0664886
Disabled_Veteran 0.2228526 -0.0021662 0.1661443

CONNECTION TO MEDICAL

Correlation of Selected Variables’ Ratios with Medical Revenue
Variable Correlation with Medical Revenue
Total_African_American -0.1457466
Total_Hispanic_American -0.1192614
Total_Native_American -0.0728584
Total_Asian_Pacific_American -0.1193689
Total_Unknown_Minority -0.0441306
Total_Minority -0.0787851
Total_Women -0.0588632
Total_LGBT 0.0478172
Total_Disabled_Veteran -0.1052064

What are hospitals saying in their commitment to supplier diversity?

Each hospital is also required to report a supplier diversity statement to state their commitment to procuring from diverse suppliers. While not required, a majority of hospitals in this dataset reported a statement. To identify common themes, I highlighted the top 20 unique words and 3-word phrases to identify common themes in supplier diversity statements.

From this analysis suppliers have a strong commitment to procuring from diverse suppliers in order to support the business needs of the hospitals. They also aim to drive some sort of competition, possibly between suppliers to lower prices.

TF-IDF values for the Top 5 Words in Supplier Diversity Statements by Type Control (Preprocessed)
Type_Control word n tf idf tf_idf
State dsh 15 0.0490196 2.0794415 0.1019334
Investor - Limited Liability Company n 115 0.0450274 2.0794415 0.0936319
Investor - Limited Liability Company y 100 0.0391543 2.0794415 0.0814190
University of California ucsf 12 0.0576923 1.3862944 0.0799785
University of California university 11 0.0528846 1.3862944 0.0733136
University of California uc 7 0.0336538 2.0794415 0.0699812
University of California relies 9 0.0432692 1.3862944 0.0599839
State order 10 0.0326797 1.3862944 0.0453037
University of California california 11 0.0528846 0.6931472 0.0366568
State agreements 5 0.0163399 2.0794415 0.0339778
State californias 5 0.0163399 2.0794415 0.0339778
State et 5 0.0163399 2.0794415 0.0339778
State mandates 5 0.0163399 2.0794415 0.0339778
State reason 5 0.0163399 2.0794415 0.0339778
State sbdvbe 5 0.0163399 2.0794415 0.0339778
State sbs 5 0.0163399 2.0794415 0.0339778
State section 5 0.0163399 2.0794415 0.0339778
State seq 5 0.0163399 2.0794415 0.0339778
State solicitations 5 0.0163399 2.0794415 0.0339778
State unless 5 0.0163399 2.0794415 0.0339778
City or County county 34 0.0306031 0.9808293 0.0300164
City or County dhs 12 0.0108011 2.0794415 0.0224602
District avh 8 0.0092272 2.0794415 0.0191875
Non-profit Corporation (incl. Church-related) kfhph 108 0.0087202 2.0794415 0.0181332
City or County evaluating 8 0.0072007 2.0794415 0.0149735
District avmc 6 0.0069204 2.0794415 0.0143906
District palomar 6 0.0069204 2.0794415 0.0143906
City or County countys 7 0.0063006 2.0794415 0.0131018
Non-profit Corporation (incl. Church-related) kaiser 72 0.0058135 2.0794415 0.0120888
Non-profit Corporation (incl. Church-related) spending 72 0.0058135 2.0794415 0.0120888
City or County clara 6 0.0054005 2.0794415 0.0112301
City or County supervisors 6 0.0054005 2.0794415 0.0112301
Investor - Partnership hpmc 3 0.0050847 2.0794415 0.0105734
Investor - Limited Liability Company inc 27 0.0105717 0.9808293 0.0103690
Non-profit Corporation (incl. Church-related) impact 87 0.0070246 1.3862944 0.0097382
District lvmc 4 0.0046136 2.0794415 0.0095937
District thirdparty 4 0.0046136 2.0794415 0.0095937
Investor - Corporation pmh 15 0.0045830 2.0794415 0.0095300
Non-profit Corporation (incl. Church-related) foundation 72 0.0058135 1.3862944 0.0080592
Investor - Partnership able 10 0.0169492 0.4700036 0.0079662
Investor - Partnership meet 10 0.0169492 0.4700036 0.0079662
Investor - Partnership use 16 0.0271186 0.2876821 0.0078015
Investor - Corporation emanate 18 0.0054995 1.3862944 0.0076240
Investor - Corporation percent 18 0.0054995 1.3862944 0.0076240
Investor - Limited Liability Company providence 14 0.0054816 1.3862944 0.0075991
Investor - Partnership competitive 6 0.0101695 0.6931472 0.0070490
Investor - Limited Liability Company classifications 12 0.0046985 1.3862944 0.0065135
Investor - Limited Liability Company deemed 12 0.0046985 1.3862944 0.0065135
Investor - Limited Liability Company fall 12 0.0046985 1.3862944 0.0065135
Investor - Corporation pmhs 10 0.0030553 2.0794415 0.0063533
Investor - Corporation least 19 0.0058051 0.9808293 0.0056938

INTERACTIVE E TABLE

Conclusion

Overall, preliminary data suggest a potential positive relationship between procurement from supplier diversity and increased income for hospitals. This remains a critical priority for hospitals and medical centers throughout California. Notably, some of the highest-earning hospitals are not allocating significant resources to diverse suppliers. Further analysis with greater statistical power is essential to clarify this relationship. It is important to address health equity gaps and combat systemic racism and injustice by actively investing in and procuring from minority-owned businesses.

A potential other area of analysis could also include removing/isolating the amount of money spent on suppliers that are the industry standard. For example, Epic Health Systems is one of the industry leaders in electronic medical record software applications and holds medical records of 78% of patients in the United States. Its CEO and founder is businesswoman Judidth Faulker who is was called “the most powerful woman in healthcare” by Forbes in 2013. n this dataset, as an industry leader, Epic Health Systems would still be categorized as a minority supplier due to Judith Faulkner’s ownership status. This presents an interesting dynamic, as Epic’s influence and widespread use could skew the analysis of diversity spend, highlighting funds allocated to suppliers who are industry giants. Examining the data specifically for minority suppliers who are not major players in their industries could provide valuable insights into how funds are distributed among smaller, potentially emerging minority-owned businesses and the unique challenges they face in achieving industry traction and growth.